The Impact Of Rea1Estate Price Volatility On Fin Ancial Stability

The volatility of real estate prices frequently induces financial instability and even financial crises in the world. Real estate prices experience sharp increases since the market-oriented reform in China. The financial crisis in2008triggers again the debate concerning whether monetary policy should respond to the volatility of real estate prices. And the macro-prudential regulation has been paid more attention. Under the circumstances, it makes sense in terms of the theoretical and practical perspective to study the mechanism of the volatility of real estate prices and its impact on financial stability and put forwards the measures from the aspects of monetary policy and macro-prudential regulation.Firstly, the dissertation discusses related theories and studies the mechanism for formation and volatility of real estate prices. The dissertation analyzes the asset bubble theories, including the rational and irrational bubble theories, and financial stability theory from macroeconomic and microeconomic perspectives. The dissertation analyzes the classification, composition and formation mechanism of real estate prices from the perspective of supply and demand especially for China. The volatility of real estate prices in several countries is examined. The dissertation studies the mechanism of volatility of real estate prices from the perspectives of economic fundamentals, credit shock, interest rate and exchange rate volatilities,"land fiscal budget", and behavioral factors.Secondly, the dissertation explores the-mechanism for the impact of volatility of real estate prices on financial stability from the perspectives of macro-economy, banking system and housing mortgage-backed security market. The macro-economy channel includes wealth effect and investment effect. The banking system channel includes the channel of bank capital, balance sheet effect and the channel of collateral values. The dissertation analyzes the development of mortgage-backed security market and its impact on financial stability. After the analysis of the mechanism, positive analysis of the impact of volatility of real estate prices on financial stability is done. The dissertation studies the volatility of real estate prices in China from1987to2011. After building a factor system with Analytic Hierarchy Process and measuring the financial stability in China, a VAR model is applied to measure the impact of volatility of real estate prices on financial stability.Lastly, the countermeasures in terms of monetary policy and macro-prudential regulation are put forward. The dissertation explores the evolution the ultimate goals of monetary policy, the development of inflation target rule and the Taylor rule, reviews the debate on whether monetary policy should respond to asset price volatility. An optimal monetary policy response model is established and the results of simulation show that monetary policy should respond to volatility of real estate prices. The dissertation analyzes the causes of pro-cyclicality. It explores the macro-prudential regulation tools for dealing with volatility of real estate prices and maintaining financial stability. And the dissertation puts forward some suggestions on the design of China’s macro-prudential regulation.